TS & S Global Ltd v Fithian-Franks & Ors

A guarantee given by guarantors as primary obligors creates an immediately payable liability, even where the guarantee also refers to payment on demand, unless the contract clearly makes demand a condition precedent. A statutory demand under the Insolvency Act 1986 assumes that the debt is already immediately payable and cannot itself ordinarily fulfil a contractual precondition to liability. However, a defect in the timing or form of a statutory demand does not require it to be set aside where the defect causes no injustice or prejudice. The residual discretion under rule 6.5(4)(d) of the Insolvency Rules 1986 should be exercised to prevent injustice, not to impose futile procedural steps.

TS & S Global Limited served statutory demands under section 268 of the Insolvency Act 1986 on five guarantors of Trak-2-U Limited. The demands concerned the cost of components purchased for the manufacture of tracking devices. The guarantors applied to set them aside, contending that their guarantee liabilities were not immediately payable because no prior demand had been served and that Trak’s underlying liability was disputed on substantial grounds.

The Scunthorpe County Court set aside the demands. On appeal, the central issues were whether the guarantee required a prior demand, whether any procedural defect justified setting aside the demands, and whether the underlying debt was genuinely disputed.

The appeal was allowed and the district judge’s order setting aside the statutory demands was reversed.

1. Guarantee liability. The guarantors were described as primary obligors and had guaranteed payment of the amount due from Trak at the relevant anniversary date. Applying MS Fashions Ltd v Bank of Credit and Commerce International SA [1993] Ch 425 and the authorities culminating in Bradford Old Bank Ltd v Sutcliffe [1918] 2KB 833, the liability was immediately payable without a prior demand. The words “on demand” and the contractual machinery for serving a demand were insufficiently clear to make demand a condition precedent.
2. Statutory demand. Section 268 of the Insolvency Act 1986, the Insolvency Rules 1986 and the prescribed form proceed on the basis that the debt is already immediately payable when the statutory demand is served. A statutory demand is intended to establish a presumption of inability to pay, not to fulfil a contractual precondition to liability.
3. Residual discretion. Even if a prior demand had been required, rule 6.5(4)(d) conferred a discretion rather than making the statutory demand void. Following In re A Debtor (No 1 of 1987) [1989] 1 WLR 271, the demand should be set aside only where its continuation would cause injustice. The guarantors would not have paid, secured the debt or acted differently after a separate demand, so no injustice or prejudice was shown.
4. Underlying debt. The underlying liability was not disputed on substantial grounds. Trak’s 1 December 2005 purchase order was a firm order for 1,100 tracking devices and 700 fobs. The quotation and guarantee covered the components for those units; only delivery dates were subject to adjustment. The alternative ground for setting aside the demands therefore failed.

• High Court (Chancery Division): The appeal from the Scunthorpe County Court was allowed. The order setting aside the statutory demands was reversed.
• Scunthorpe County Court: District Judge Robinson set aside the statutory demands under section 268 of the Insolvency Act 1986.